Wake up! Reforming the EU Emission Trading Scheme: Comparative evaluation of the different options

Welcome and introductory speech by Pekka Lundmark at the launch event of EU emissions trading scheme report

Brussels, 8 November 2016


Ladies and Gentlemen,

On behalf of the seven large European power companies I warmly welcome you all to this event around a highly topical issue, the EU emissions trading scheme.

There is high consensus that climate change is the biggest threat that mankind is facing at the present time. The adoption and quick ratification of the Paris Agreement shows that mankind is also willing to tackle this enormous challenge. According to the IEA, investments of USD 16.5 trillion will be needed in the energy sector up to 2030 to meet the two degrees goal. It is obvious that this money is not coming from government budgets. Unless we get market forces to work in favor of this goal, we can forget it.

The European electricity industry is strongly committed to delivering a carbon neutral power supply in Europe by 2050 at the latest. At the same time, the industry is equally committed to ensuring a competitively priced and reliable electricity supply throughout the integrated European energy market. We believe that this commitment to decarbonise electricity generation - together with the electrification of other sectors such as heating, cooling and transport - will greatly help Europe in meeting its climate targets.

However, the existing policy framework is not optimal to support the decarbonisation efforts of the electricity industry. Most of future investments are currently on hold across Europe because a clear and robust long-term carbon price signal is missing. The confidence on a truly European, market-based instrument, the ETS, is at risk.

At the same time, we all know that ideally a well-functioning ETS could bring about multiple benefits:

It would enable low-carbon technologies to compete on their merits, provide economic incentives to close the most polluting plants, enhance innovation and research on emerging technologies and provide competitively-priced power supply. ETS is a technology neutral measure that promotes renewable energy and energy efficiency activities as main measures of reducing emissions in the sectors covered.
Roughly a year ago, 11 major European utilities, representing around 1,800 TWh of power with an aggregated turnover totalling 310 billion euros per year, established the wake-up call coalition. The aim was to raise awareness amongst decision-makers that the efficient decarbonisation process is at risks. The coalition companies wanted to send a strong message that we see ETS as our future and as our solution. These large electricity companies actively contribute to climate change mitigation through their investments in low-carbon or CO2-free technologies.

Later on, seven out of the 11 companies - namely EDF, ENEL/Endesa, EDP, ENGIE, Fortum, Iberdrola and CEZ - decided to perform a study to analyse in-depth several options to revise the ETS in order to increase its steering impact. Today we will hear about the results: impacts that the various options would have on the supply-demand and prices on the carbon market as well as future emissions trajectory. We strongly urge legislators to consider the results of this extensive analysis in their work.

The ETS was designed to achieve emissions abatement in the most cost-efficient and technology-neutral way, and thus incentivize the use of and investments in low carbon technologies. Enforcing the ETS should, therefore, be the solution for fighting climate change by increasing the competitiveness of low-carbon technologies and triggering long-term low-carbon investments in them. Although measures taken so far to strengthen the ETS - namely backloading and market stability reserve - are moves in the right direction, they are clearly insufficient. They alone will not secure the shift to low carbon technologies or enable building on the momentum of the Paris Agreement.

With the current proposal for the revision of the ETS Directive and without any further action, investors won’t recover confidence in the ETS any time soon. The Commission’s proposal for the amendment of the Directive simply is not ambitious enough. It is therefore urgent to act beyond the current draft legislation, otherwise Europe will lose its leadership in fighting climate change and doing that cost-efficiently. I believe it would be a great shame, if Europe would not be able to decarbonise its economy at an affordable cost after playing such a critical role in the success of the Paris Agreement. 

Ladies and Gentlemen - we have to act now.

The ongoing revision of the Directive during the next few months provides a unique - but I'm afraid also the last - opportunity to salvage the ETS. We have to find a solution that can fix the ETS for the period 2021-2030 without a need for further frequent interventions. This is also exactly the right time as renewable electricity technologies are on the verge of transitioning from support-led to market-driven generation. Missing this historical chance will most likely lead us to where we started 20 years ago, that is to say, fragmented and mostly national markets and policy measures.

In the efforts to mitigate climate change, measures at the Union-level should be preferred over non-coordinated national initiatives. The EU ETS is a truly European policy instrument. Unless the ETS is strengthened, it is likely to be substituted by nationally-based policies, which could ultimately result in a fragmented, overlapping and less efficient framework. A robust ETS would restore a level-playing field in the EU.

The study that we have carried out clearly shows that we have a number of options available that could form the basis of an ambitious but yet realistic ETS reform, addressing all structural issues while preserving the European market-based approach of the ETS. But the study also shows that because numerous EU wide and national policies affect the ETS, there is no silver bullet: no single option is able to solve all current shortcomings. We need to combine options for a comprehensive reform.

Our opinion is that the earlier the EU ETS is adjusted to reflect the long-term European climate goals, the lower the overall societal costs for reaching the targets are and the greater the predictability needed by EU ETS operators and investors is.

And while we are determined to maintain the EU's climate leadership, we must also preserve the competitiveness of European industry. For us in the electricity sector, European industries are important customers. We have to find a workable solution at the European level that is able to accommodate industry’s need. This is a crucial point in the utilities’ strategy, ie. seeking a deal that takes on board other industries as well. The best solution to tackle the competitiveness and carbon leakage concerns would be to make carbon pricing geographically more global. We already see promising progress on this: carbon pricing currently covers 13% of global emissions, but the scope is expected to increase. Canada recently proposed the creation of a pan-Canadian carbon-pricing framework and China is planning to start a national emissions trading scheme in 2017 that will nearly double the amount of global emissions subject to carbon pricing.

Ladies and Gentlemen, the task at hand is not overwhelmingly complicated or burdensome. We simply need political will and legislative agility to reform the ETS to its original ambition.

---

With these opening remarks, I again welcome you all and look forward to a lively debate today around this really important topic.

Back